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At least since Adam Smith's Wealth of Nations, economists have recognized that workers require compensation to accept the risk of death or dismemberment on the job. While this wage premium provides employers with incentives to reduce the risk on the job, the calculus of the marketplace allows workers and employers to trade the costs of reducing workplace risk against the benefits associated with the reduction.

This calculus, when applied to large numbers of workers, allows a researcher to calculate the value of a statistical life, or the wage reduction associated with reducing the expected number of deaths by one worker. As this value represents the amount of wages that workers are willing to forgo to reduce risk, the value of a statistical life appears to be a useful tool for evaluating individuals' willingness to pay for reductions in risk in other areas. Indeed, it is a measure of the price of risk. The Environmental Protection Agency (EPA) often considers regulations that both impose costs on industry and reduce the deaths from environmental contamination. While the costs may often be calculated with a great deal of accuracy, the problem for policymakers is to value the corresponding benefits. The price of risk appears to be a useful tool for such evaluations.

When basing policy on estimates of the price of risk, the precision and accuracy of the estimates become of utmost importance. Yet, Viscusi (1993), in his review of labor market studies of the value of life, reports that the majority of the estimates are in the $3 to $7 million range [in December 1990 dollars, p. 1930], and this range excludes studies that Viscusi felt were flawed. While this represents over a 133 percent variation, Viscusi correctly notes that much of the variation should be expected, as the studies used different methodologies and different samples. Workers may differ in their attitudes toward risk, and the mixes of workers in these various studies differ substantially. His review, however, leaves unanswered how much of this variation results from differences in the sample of workers, measures of job risk, and the specification of the estimating equation.

In this report, we use three data sets to estimate the price of risk: the Outgoing Rotation Groups of the Current Population Survey, the March Annual Demographic Supplement of the Current Population Survey, and the National Longitudinal Survey of Youth (1979). Labor economists frequently use these three data sets to estimate wage equations. We match these data to two sources of job risk data: the Bureau of Labor Statistics estimates from their Survey of Working Conditions and the National Institute of Occupational Safety and Health estimates from their National Traumatic Occupational Fatality survey. We then use these data to estimate the price of risk.